North American Grid Operators Release Report on Market Efficiencies

Renewable power is gravitating toward organized wholesale electricity markets that improve reliability and open doors to diverse resources including demand response. Those are the findings of a new 2009 State of the Markets Report issued by the Independent System Operator/Regional Transmission Organization Council (IRC) last week, which represents North America’s 10 electric grid operators.

In the report released Sept. 22, the grid operators responsible for managing the electricity “superhighway” delivering power to two-thirds of United States consumers and more than one-half of Canadians stated their analysis reveals that organized competitive markets are shattering barriers for renewable and demand response resources; creating new efficiencies in plant operations; significantly improving grid reliability; sending clear, timely, and transparent pricing signals; and expanding regional planning.

ISOs and RTOs perform independent annual market evaluations within their individual regions to assess market efficiency. The 2009 State of the Markets Report provides an overview of reliability and market efficiencies gained among North America’s organized wholesale markets since 2005, when The Value of Independent Regional Grid Operators white paper was compiled.

"Across the board, we are seeing that savings from wholesale energy markets are coming from better generation commitment, lower dispatch costs, improved system reliability, and transparent price signals,” said Nick Brown, President and CEO of Southwest Power Pool and 2009 IRC Chair.

Demand Response – ISO/RTO efforts have resulted in a total of 31,695 megawatts of available demand response in North America, up from 17,146 megawatts in 2006, an 85% increase in available resources to draw on in times of need. ISOs/RTOs encourage greater efficiencies in demand response programs through independent dispatch, settlement, and standardized business practices.

Renewable Resources – ISO/RTO wholesale electricity markets support the development of renewable resources, resulting in a fourfold increase of wind capacity being added to the nation’s interconnected electric transmission system since 2004. Wind generation capacity of 21,254 megawatts, or nearly 80% of the total wind capacity in the country, operated in ISO/RTO regions in 2008. Wind forecasting tools have improved as well, resulting in improved unit commitment and dispatch efficiency.

Generation Efficiencies – Competitive wholesale power markets have resulted in higher power-plant availability, lower outage rates, greater unit commitment efficiencies, and the construction of more efficient generation. For example, since 2001 installed new capacity increased by 26,681 megawatts in ERCOT, a 50% increase. The increase in installed capacity for nine of the 10 ISO/RTOs was 20% during the same time frame.

Infrastructure Investment – Large-scale transmission projects across multiple transmission systems have been completed or initiated in the Midwest ISO, PJM Interconnection, ISO New England, and ERCOT over the last several years.

Price Declines - The report notes that fuel-adjusted spot energy prices are declining in most ISO/RTO regions as a result of regional economic dispatch and wholesale competition. For example, the fuel-adjusted cost of wholesale power in New York fell 18% from 2000 to 2008. In California, total wholesale costs fell from 2006 to 2007.

“Organized markets produce competitive prices for wholesale electricity that accurately reflect the market fundamentals of supply and demand as well as lower production costs,” said Rana Mukerji, Vice President of Market Structures at the New York Independent System Operator and Chair of the IRC Markets Committee. “ISO/RTO markets allow the most cost-effective and reliable sources of generation to be matched with power needs across a wider footprint, leading to increased efficiency,” he added.

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